Is East Africa on track to become the new Tech startup hub of the African Continent?

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By Jean Clarys

In recent years, the African continent has seen significant growth in investments in tech startups, accelerating during and after the pandemic. Annual venture capital funding in this region increased from $2 billion in 2019 to $5 billion in 2022. Over the past decade, $20 billion has been invested in the continent, with 68% of that amount occurring in the last three years (2021, 2022, 2023).

This surge in tech startup investments can be attributed to a strong interest in developing technological innovations that address local needs in health, financial inclusion, and food sovereignty. Additionally, the appeal of investing in this sector is driven by substantial growth prospects, given the social and economic challenges the continent will face by 2050, such as rising unemployment and increasing difficulties in accessing public services.

Consequently, there are about 600 tech hubs across the continent, with Nigeria, Kenya, and South Africa leading the pack. While the entire African continent seems to be experiencing a tech startup boom, the enthusiasm for these investments remains uneven from one country to another. In this context, it is worth exploring East Africa's potential to become the next leading tech startup ecosystem on the continent.

While many articles discuss the development of tech startup ecosystems in Africa from either a continental or national perspective, this analysis will focus on the advantages and challenges East Africa faces in developing its tech startup ecosystem and whether it could indeed become the new beacon of tech startups on the continent.

One of East Africa's primary advantages over other regions is its plurality of tech hubs. While other African regions centralize their tech ecosystems within a single country, and often a single city—Egypt for North Africa (Cairo), Nigeria for West Africa (Lagos), and South Africa for Southern Africa (Cape Town, Johannesburg, and Gauteng)—East Africa, though dominated by Kenya (Nairobi), boasts several dynamic ecosystems, including Rwanda, Tanzania, Uganda, and to a lesser extent, the Democratic Republic of Congo (DRC), Ethiopia, and Mauritius.

This multipolarity, a rare quality on the African continent, must be viewed in context. For instance, while $880 million was invested in Kenya's tech startup ecosystem in 2023, Tanzania and Uganda attracted only $25 million and $5 million, respectively.

Kenya is the main driver of tech startup growth in East Africa. Its dynamic ecosystem, known as the “Silicon Savannah,” hosts over 200 startups. In 2023, Nairobi even overtook Lagos as Africa's top digital hub. Kenya alone attracted $880 million in venture capital in 2023, accounting for 31% of all investments in African startups. This performance enabled Kenya to surpass giants like Nigeria, Egypt, and South Africa, which attracted $410 million, $640 million, and $600 million, respectively.

The presence of major tech companies (GAFAM) in Nairobi supports this tech startup ecosystem. For instance, Microsoft’s development and research center in Nairobi continues to grow since its establishment in 2019, whereas the one opened in Lagos at the same time closed in May 2024. In April 2022, Google followed Microsoft's lead by setting up its first development center on the continent in Nairobi, planning to invest over 115 billion KSh (about $1 billion) over the next five years.

Moreover, in October 2023, Amazon AWS opened its first development center in the heart of the capital. Initially known for its fintech dynamism, exemplified by M-Pesa, a mobile money transfer service developed by Safaricom, Kenya's tech startup ecosystem is also gaining traction in other sectors like Greentech, Health Tech, and Ed Tech.

Other structural advantages complement the multipolarity of the region and the presence of a leading city for all of East Africa. The region has a young, rapidly evolving, and digitally savvy population. This population is generally well-educated, thanks to initiatives like Andela and Moringa School, which train highly skilled developers and engineers to meet the growing demand for tech talent.

A strong culture of collaboration, unique to East Africa, also positions the region as a potential future leader on the continent. This collaborative culture is evident in the numerous events contributing to the rise of a powerful tech startup ecosystem in the region, such as the AHUB East organized by East Africa Com (EAC), the Eastern Africa Startup Awards (GSA), and the alliance between Kua Ventures and Startup Savanna.

The strong representation of public and private actors from the region in tech initiatives across the continent, like TechCabal, the Africa Startup Ecosystem Builders Summit & Awards (ASEB), and the Africa Tech Festival, also highlights this collaborative culture. The influx of capital and investment into tech startups is another major asset distinguishing the region from the rest of the continent.

Local venture capital funds, such as Savannah Fund and TLcom Capital, play a crucial role in supporting startups at various stages of development. Additionally, regional governments recognize the importance of the tech sector for economic development. Favorable policies, such as tax incentives for startups and investments in digital infrastructure, are implemented to support innovation.

For example, Rwanda launched the “Smart Rwanda Master Plan” in 2020 to promote digital transformation. Government support is also reflected in educational programs, with Kenya mandating the teaching of basic computer coding in primary schools. Uganda's National Transmission Backbone Infrastructure (NTBI) project aims to deploy a nationwide fiber optic network, improving internet connectivity and attracting tech companies. Tanzania followed suit with the National ICT Broadband Backbone (NICTBB) project. In Uganda, government-created free zones offer tax benefits to encourage foreign investments in tech startups.

However, the region also faces challenges that temper the assertion that East Africa will undoubtedly become the beacon of African tech startups. First, like the rest of the continent, East Africa is not immune to the global slowdown in tech startup funding. The venture capital fund Partech Africa reports that the continent's tech ecosystem was valued at $3.5 billion last year, a 46% decline from 2022, with half of its active investors lost.

The region's tech startup ecosystem's dependence on foreign investments explains why it has been disproportionately affected by this funding shortfall compared to many other regions. As Jit Bhattacharya, CEO and co-founder of the electric mobility startup BasiGo in Kenya, notes, access to funding remains the primary challenge for Kenyan tech startups. A survey conducted by the regional tech event East Africa Com and the tech news portal Connecting Africa reveals that behind this concern (59%), the main threats identified by East African tech entrepreneurs in 2023 are dependence on international venture capital firms (56%) and global recession trends (55%).

This set of threats partly explains why several tech companies in the region, such as Cellulant, Twiga, Wasoko, and MarketForce, have recently faced disruptions ranging from layoffs and contractions to strategic recalibrations. Some startups have even permanently closed their doors, including Zumi, Kune, Sendy, and Dash. Another significant structural challenge that seems to hinder East Africa's push to become the new tech startup beacon of the African continent is high corruption levels, as highlighted by American journalist Keith Richburg in a Washington Post article. He refers to a Daily Nation article estimating the cost of bribes for 10 basic services. Recently, U.S. Trade Representative Katherine Tai warned that corruption in public procurement was hampering efforts to attract more American investments.

Thus, it is evident that East Africa is a true international cradle of the tech startup ecosystem. This dynamism is driven by, among other things, dynamic public policies, investor confidence, supportive education and training for tech, crucial infrastructure development, a culture of collaboration, a driving force embodied by Kenya's dynamism, and two often-overlooked yet crucial advantages: an English-speaking population and a pleasant climate. These factors seem essential to attracting talent and young workers from around the world. However, despite these clear advantages, some challenges must be considered to determine whether East Africa will become the new tech startup beacon on the African continent.

The main challenges include a significant dependence on international trends, particularly foreign investments, and a development foundation threatened by high corruption levels. While Kenya (MYDAWA, Kopo Kopo, etc.), Rwanda (Kacha, SafeMotos, etc.), Tanzania (Ubongo, Jumia Tanzania, etc.), Uganda (SafeBoda, Numida, etc.), Mauritius (EcoVadis, Azuri Technologies, etc.), Ethiopia (BeBlocky, ArifPay, etc.), and Eastern DRC (Elimu, Nuru, etc.) present promising tech startup ecosystems, some challenges remind us that the international competition is fierce and other African ecosystems also aim to capitalize on this opportunity.

For instance, Nigeria (Terragon, Moove, etc.) has developed 5 of the 7 African unicorns, South Africa (OrderIn, Pineapple Insurance, etc.) has numerous startup hubs across its territory, including Cape Town, Johannesburg, Pretoria, and Port Elizabeth, and Egypt (Swvl, Vezeeta, etc.)saw its first unicorn, Fawry, emerge in 2020 and is the country with the most tech startups on the continent.

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